Tag: bookkeeping basics for business owners

Why It’s Important to Have Your Bookkeeper Close the Annual Books

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As the year comes to a close, businesses must ensure their financial records are properly finalized. One crucial step in this process is the formal closure of the annual books by a bookkeeper. This essential practice not only maintains financial accuracy but also helps in compliance, decision-making, and strategic planning. But what exactly does closing the books involve, and why is it so important? Let’s explore the key aspects of this process.

What Does Closing the Books Involve?

Closing the annual books is a systematic process that ensures all financial transactions for the fiscal year are accurately recorded and reconciled. This involves several critical steps:

  1. Reviewing Transactions: Bookkeepers go through the entire year’s financial records to verify that all transactions—revenues, expenses, assets, and liabilities—are recorded correctly.
  2. Reconciling Accounts: Bank statements, credit card statements, and other financial records must be reconciled to ensure there are no discrepancies between what is recorded in the books and actual financial activity.
  3. Reconciling Payroll and Sales Tax Accounts: Payroll liabilities and sales tax payable accounts must be reviewed and reconciled to ensure all obligations have been met and recorded correctly.
  4. Adjusting Entries: Accruals, interest expenses, prepaid expenses, and other necessary adjustments are recorded to reflect accurate financial positioning.
  5. Generating Financial Statements: Once accounts are reviewed and reconciled, the bookkeeper generates key financial reports, such as the income statement, balance sheet, and cash flow statement, to provide a clear picture of the business’s financial health.
  6. Reviewing for Errors and Compliance: Any inconsistencies, duplicate transactions, or missing records are identified and corrected to ensure compliance with tax regulations and accounting standards.
  7. Client Book Review: The bookkeeper conducts a final review with the client to ensure all necessary documents are included, outstanding questions are addressed, and any last-minute adjustments can be made before officially closing the books.
  8. CPA Final Adjustments: The CPA will provide any final adjusting entries, including depreciation, to ensure financial statements reflect accurate tax and accounting treatments.
  9. Closing Temporary Accounts: Revenue and expense accounts are closed, transferring net profit or loss into the retained earnings account, resetting them for the new financial year.

Why Is Closing the Annual Books Important?

1. Ensures Financial Accuracy

By closing the books properly, businesses eliminate errors that could impact financial reporting. This helps ensure that all transactions from the previous year are accounted for correctly and that opening balances for the new year are accurate.

2. Facilitates Tax Preparation and Compliance

A well-maintained and closed set of books simplifies tax filings and ensures compliance with IRS regulations. Accurate financial records help minimize the risk of audits and penalties associated with incorrect tax filings.

3. Provides Insightful Financial Analysis

Closing the books provides a clear and complete financial picture, allowing business owners and management to analyze profitability, expenses, and cash flow trends, which can inform better decision-making.

4. Supports Strategic Planning

With properly closed books, businesses can create reliable budgets and forecasts for the coming year. This allows for more effective financial planning and helps set realistic goals based on accurate data.

5. Improves Investor and Lender Confidence

Investors, lenders, and other stakeholders rely on accurate financial statements to assess a company’s performance and financial health. A well-closed financial year reassures them that the company maintains sound financial practices.

6. Prepares for External Audits

If a business undergoes an audit, either by choice or necessity, properly closed books make the process much smoother. Having organized financial records ensures that all necessary documentation is readily available.

Conclusion

Closing the annual books is not just an administrative task—it is a fundamental practice for financial integrity, compliance, and business growth. A professional bookkeeper ensures that this process is handled efficiently, setting the stage for a strong financial start to the new year. Investing time and effort into this process can prevent costly errors, reduce stress during tax season, and provide valuable insights for future success.

Remember that the CPA provides the final end-of-year adjustments. Bookkeepers record financial transactions in the books, while CPAs apply tax law to those records. These transactions include items like depreciation, which is a tax adjustment, not an actual bank transaction.

Preparing Bookkeeping for the End of Year: A Guide

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As we approach the end of the year, it’s time to start thinking about wrapping up your bookkeeping. Yes, I know what you’re thinking – “Finally, a chance to put my accounting skills to use!” But before you break out your calculator and spreadsheet wizardry, let’s talk about what this will entail.

Well, dear reader, I have some delightful news for you. As you stand on the precipice of spreadsheets and numbers, there’s a trustworthy ally ready to swoop in and carry some of that bookkeeping weight – Incline! That’s right, you’re not alone in this numerical forest. Incline will come with its accounting superpowers, ready to tackle the tangled jungle of receipts, invoices, and tax forms. So hold off on that emergency coffee order and remember, Incline is here to handle the heavy lifting. Breathe easy, keep your calculator at bay, and let’s move on to the next step, shall we?

Gathering The Essential Documents

You’ve got Incline by your side, and now it’s time to bring in the artillery – your essential documents. Think of this as a treasure hunt, only instead of a buried chest of gold, you’ll be unearthing paperwork. First things first, did you make any big purchases or sales this year? Are there any new flashy cars, fancy equipment, or items that had you parting with more than $2500? If so, you’ll need to rustle up the purchase documents.  Your CPA will need copies. 

Bringing in the Big Guns: Final Loan Statements

Now that we’ve dug up the treasure chest of purchase documents, it’s time to gear up for the next level of our financial scavenger hunt – Final loan statements. These are like your report cards but for your debt. They show how well you’ve been managing your loans. Only this time, instead of grades, you’re looking at the interest and balance of the loan, specifically as of 12/31/23. Your CPA will need these to understand how much interest you can write off. So, dig through your files, drawers, email inboxes, or wherever you stash these. And remember, each one you find brings you one step closer to completing your year-end bookkeeping. Put on your adventurer hat, and let’s get to it!

Time to Send Us Your Tax Documents: The Grand Finale

Now that you’ve excavated your final loan statements, and your CPA has stopped crying tears of joy, it’s time for the grand finale. You’ve reached the pièce de résistance of our financial adventure – sending us your tax documents.

Your tax documents are like the secret sauce in your financial burger, the cherry on top of your accounting sundae. They include W-2s, 1099s, 1098s, K1s, and all other tax forms that the IRS loves to pore over. So, it’s time to channel your inner detective and gather these crucial documents.

These little nuggets of information are crucial for us to help you file your taxes. Remember, like a good detective, no piece of paper is too insignificant! Send us all documents that carry the information needed to file your taxes. Your diligent documentation now could be the difference between a smooth tax filing experience and a stressful one. So let’s get to it, shall we?

Don’t be shy, send them over posthaste! Your CPA is waiting with bated breath for this accounting banquet. Remember the IRS has a knack for finding missing forms, so let’s beat them at their own game. Incline is here to help you every step of the way. So, polish off that magnifying glass and start rifling through your paperwork. Your end-of-year bookkeeping is a sprint to the finish line and you’re almost there!

The 3 Types of Business Liabilities (And What They Mean for Your Bottom Line)

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 If you’re a small business owner, then you know that one of the most important things to understand is your company’s financial statement. In particular, you need to have a firm grasp on your balance sheet—or, more specifically, your liabilities.

But what exactly are liabilities? And what types of liabilities should you be aware of? Here’s a quick overview:

Current Liabilities:

These are debts that need to be paid within one year. Examples include short-term loans, accounts payable, and accrued expenses.

Long-Term Liabilities:

These are debts that won’t come due for more than a year. Examples include long-term loans and bonds payable.

Equity Liabilities:

These are funds that have been invested in the company by shareholders. Equity is not technically a debt, but it is still considered a liability because it represents money that needs to be repaid (with interest).

As a small business owner, it’s important to have a firm understanding of your company’s financial statement—including your balance sheet. Your balance sheet lists all of your assets (what you own) and liabilities (what you owe). Of those liabilities, there are three main types: current, long-term, and equity. By understanding the difference between each type of liability, you can make better decisions about how to manage your finances and grow your business.

PCI Compliance 101 – A Beginner’s Guide to Secure Payment Processing

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Cyber-security and payment protection are top of mind for small businesses and consumers.  Small businesses are becoming increasingly vulnerable to data breaches and cyber-attacks. And when it comes to processing payments, PCI Compliance is a way to certify that your business meets current cybersecurity milestones.  As a small business owner, understanding payment processing and data security can be overwhelming. That’s why we’ve put together this beginner’s guide to PCI Compliance, to help small business owners understand the basics and protect their customers’ payment information. We hate that we have to think about this at all!

If you accept payments through Intuit/Quickbooks, make sure you read the last section of this blog!

What is PCI Compliance?

PCI Compliance stands for Payment Card Industry Compliance. It was developed by a council of payment card issuers, including Visa, Mastercard, American Express, and Discover, to establish security standards for businesses that process payment transactions. These standards were established to protect customers from payment card fraud and data breaches. Did we mention that this is boring and we don’t want to have to learn about this?

If you accept payments through Intuit/Quickbooks, make sure you read the last section of this blog!

Who needs to be PCI Compliant?

If your business accepts ACH, credit card, or debit card payments, you should be PCI Compliant. Even if you only accept a few payments a year, you are still at risk of a security breach. If your business is not PCI Compliant, you could be at risk of liability, fines, and a damaged reputation. They hit you where it hurts!

How can you become PCI Compliant?

Becoming PCI Compliant involves a series of steps that ensure your business is complying with the Payment Card Industry Data Security Standards (PCI DSS). These standards require businesses to implement certain security measures to protect their customers’ payment card information. The steps to becoming PCI Compliant typically involve completing a self-assessment questionnaire and undergoing a vulnerability scan to identify any potential security issues. Snooze, snooze.

What are the consequences of non-compliance?

If your business is not PCI Compliant, you could be at risk of fines, legal action, and a damaged reputation. In addition, if your customers’ payment card information is breached, you could be liable for the cost of the damages. Ensuring that your business is PCI Compliant is not only a legal requirement but also a crucial step in protecting your customers’ payment card information and your business’s reputation. Hit where it hurts….again.

PCI Compliance is essential for any business that processes payment transactions. As a small business owner, it is crucial to understand the basics of PCI Compliance and take the necessary steps to protect your customers’ payment card information. By implementing PCI DSS security measures and regularly monitoring your systems, you can reduce the risk of data breaches and cyber-attacks, and ensure that your customers’ trust in your business is maintained. Remember, being PCI Compliant is not only a legal requirement, but it’s also good business practice and a sign of your commitment to keeping your customers’ payment information safe.

If you accept payments through Intuit/Quickbooks:

Intuit recently released an announcement requiring businesses to use Intuit merchant services to become PCI compliant. To continue receiving electronic payments through Intuit merchant services, you will need to become compliant. You have likely already received an email from Intuit (yes, it’s in your junk) explaining the process.

Compliance requires that you pay an annual fee of $85-$300 to SecurityMetrics.  SecurityMetrics will provide you with your final price.  

As a small business owner, you have choices.  You can become compliant.  You can change to a different payment processing system.  You can decide not to accept electronic payments.  All of these options have implications for your business and for your bookkeeping system.  Please take a moment to talk with your lead bookkeeper about your options.  For more information, contact your lead bookkeeper to schedule a talk.  

If you decide to become compliant, Quickbooks has partnered with SecurityMetrics to provide a more seamless experience.  For more information about how the process works and to become compliant, here is the update from Intuit. 

Or for a more personalized experience, contact SecurityMetrics directly at 801-995-6400

How to Get Paid Faster: A Guide to Accounts Receivable

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As a small business owner, you know that cash flow is key. Without cash, you can’t pay your vendors, staff, or yourself. But sometimes it feels like getting customers to actually pay what they owe is an uphill battle. That’s where accounts receivable come in! Don’t worry if you don’t know what it is – we’re about to break it down for you.

What is Accounts Receivable?

Accounts receivable (AR) is the money that customers owe a business for goods and services provided but not yet paid for. It can also refer to the process of tracking how much each customer owes and how much has been paid off. AR falls under the umbrella of financial management and plays a major role in your company’s overall financial health.

How Can You Generate Faster Cash Flow?

Generating faster cash flow involves making sure that customers are paying their invoices quickly and accurately. Here are some tips on how to do just that:

1. Offer discounts for early payment

This provides an incentive for customers to pay their bills on time or even early!

2. Make sure your invoices are clear and easy to understand.

Include due dates, itemized lists of products/services, payment methods accepted, etc. This will help avoid confusion or miscommunication down the line and ensure that payments get made in a timely manner.

 3. Automate reminders.

Automated text messages or emails can remind customers when payments are due or remind them of any discounts they may receive if they pay early. Automation saves time and ensures more reliable communication with customers so that payments get made promptly!

4. Use online payment portals.

Online payment portals make it easier for customers to pay their bills quickly and securely without having to mail in checks or other forms of payments manually.

5. Offer multiple ways for customers to pay.

Accept credit cards, e-checks, direct debit, check by phone, PayPal, Venmo, etc. Allowing multiple forms of payment makes it easier for customers to pay their bills on time !

6. Streamline Collection Process

Streamlining your collection process includes tracking invoices sent out as well as payments received so that nothing slips through the cracks. This helps ensure that all outstanding accounts are being tracked accurately and consistently.

7. Implement Automated Credit Control Systems

Automated credit control systems allow businesses to automate tasks like sending out reminder emails/texts or automated follow-ups when invoices remain unpaid after a certain period of time has passed. This helps keep track of all accounts receivable efficiently without having someone manually monitor them every day which saves time and resources!

8. Follow Up On Late Payments Immediately.

Following up on late payments immediately shows your clients that you take their commitments seriously by providing prompt responses when necessary. Prompt responses help ensure quicker resolution times which can result in faster cash flow!

Accounts receivables play an important role in managing a business’s overall financial health as well as its ability to generate faster cash flow – but it doesn’t have to be tedious or overwhelming! By following these tips you’ll be able to manage your AR more efficiently while still providing excellent customer service throughout the process! So put them into action today – let’s get those invoices paid faster! Contact us if you’d like help managing your accounts receivables.

An Overview of the Colorado Secure Savings Act: Employer Responsibilities

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If your business is in Colorado AND you have payroll (even if your payroll is only for yourself), PLEASE READ THIS ARTICLE!  

The Colorado Secure Savings Act, signed into law in May 2021, requires Colorado-based employers with at least five employees to offer a retirement savings program to their workers. 

****Regardless of the number of employees you have, this Act REQUIRES ACTION****

If Incline Business Essentials provides payroll services to your company, we have you on our list to assist.  If your payroll services are provided by a CPA or other outside company, please coordinate with us if you need assistance.  

BUSINESSES WITH FEWER THAN 5 EMPLOYEES 

  1. If your business has fewer than five employees, you will receive a PIN number from the State of Colorado.  You will receive this via a letter/postcard AND/OR via email.  This PIN is necessary to officially notify the state that your business is exempt.  Please be on the lookout for this PIN and forward it to your bookkeeper.  
  2. If Incline handles your payroll, Incline Business Essentials will ensure that you are registered as an exempt business with the State of Colorado.  Incline will bill you accordingly for this additional work.  If you have an outside payroll provider (CPA or other), please please coordinate with us if you need help setting this up.
  3. If you hire additional employees and reach the 5-employee threshold, PLEASE, PLEASE let us know.  We cannot ensure your compliance unless you communicate these changes to us.

BUSINESSES WITH 5 OR MORE EMPLOYEES

Do you already offer an acceptable employee savings plan?  Please read the applicable category below:

If your business has five or more employees and you already HAVE an acceptable savings program set up for your employees: 

  1. You will receive a PIN number from the State of Colorado.  You will receive this via a letter/postcard AND/OR via email.  This PIN is necessary to officially notify the state that your business is exempt.  Please be on the lookout for this PIN and forward it to your bookkeeper. 

If your business has five or more employees and you do NOT already offer an acceptable savings program:  

You are required by law to offer the Colorado Secure Savings program.  What does this mean for you?

  1. We will need to create an online account/portal for the Secure Savings Act.  You will receive a PIN number from the State of Colorado.  You will receive this via a letter/postcard AND/OR via email.  This PIN is necessary to set up the required online portal.  Please be on the lookout for this PIN and forward it to your bookkeeper. Incline will handle the setup and will bill you accordingly.  We MUST HAVE THE PIN from you.  Please send this to us no later than June 10th.
  2. Important:  YOUR EMPLOYEES WILL AUTOMATICALLY BE SET UP FOR THIS PROGRAM.  This is an “opt-out” program.  Your employees will receive an email with opt-out instructions.  This will come directly from the state after we create your online business profile.  It is YOUR EMPLOYEE’S RESPONSIBILITY TO “OPT-OUT” IF THEY CHOOSE NOT TO PARTICIPATE.   Incline cannot Opt-Out for your employee.  You cannot opt-out for your employee.  Your employee must complete this opt-out process.  Otherwise, 5% of their gross earnings will be automatically withheld from their paycheck to be placed into a savings account.
  3. Each pay period, Incline Business Essentials will log into the portal with the state and make the appropriate payments into the employee savings accounts.  
  4. Incline Business Essentials will be billing accordingly for this work.

TO HELP YOUR EMPLOYEES “OPT OUT”

Incline cannot opt your employees out.  The employee must opt out of the program themselves OR they will AUTOMATICALLY have 5% of their gross payroll withheld.  If they do not opt-out and funds are withheld, your employee will have to access their funds directly from the state.  Incline cannot assist you with withdrawing funds from Colorado Secure Savings.

  1. Your employee should receive an email from the state with opt-out instructions.
  2. If no email is received, please direct your employee to: https://coloradosecuresavings.com/ 

To our knowledge, this is the only way to opt out of the program.  If you have employees who may not be able to navigate the opt-out, we recommend that you sit at a computer or device and help them through the process.  While it is the employee’s responsibility, as the employer, it is your legal responsibility to inform your employee and ensure that your employees understand this will be happening.

Important Reminder:

Incline Business Essentials is NOT an HR company.  It is your responsibility to notify your employees in accordance with the Colorado Law.  For full details, visit the Colorado Secure Savings website.  If you are a Gusto or QBO payroll client, we can connect you with Gusto/QBO HR services if you need things like employee handbooks, etc.  

For more information about the Employer Responsibilities, please refer to: https://coloradosecuresavings.com/employers/program-details

Incline is here to help.  If you have any questions, please do not hesitate to reach out.  If we don’t know the answer, we will do our best to help find the answer.  Reminder that we will be billing for our services in setting up these systems.

What is the Difference Between a CPA and a Bookkeeper?

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Are you a small business owner, CEO or CFO trying to determine which financial professional you need for your organization? Both Certified Public Accountants (CPAs) and Bookkeepers are important roles in any finance department, but they have different responsibilities. Here’s what you need to know about the difference between CPAs and bookkeepers.

What Does a CPA Do?

A CPA is responsible for providing financial advice, managing taxes, and auditing financial records. They typically focus on long-term planning for businesses as well as individuals. CPAs also analyze complex financial data and create solutions that can help businesses reduce their taxes or increase profits. A CPA may also work with other professionals such as lawyers or consultants to provide the best advice possible.

What Does a Bookkeeper Do?

A bookkeeper is responsible for maintaining accurate financial records of a business’s daily transactions. Common tasks include tracking accounts receivable, accounts payable, payroll, budgeting, and invoicing. The goal of a bookkeeper is to ensure that all transactions are properly recorded so that accurate financial statements can be generated each month.  While bookkeepers don’t usually provide long-term strategies or tax advice like CPAs do, they can assist with analyzing data and making sure everything is up-to-date and accurate. This helps the business make informed decisions by having reliable data on hand at all times.

It’s important to understand the differences between CPAs and bookkeepers when hiring for your organization’s finance team – both play an essential role in helping you reach your goals! While CPAs provide strategic guidance on long-term planning and reducing taxes, bookkeepers keep track of day-to-day operations by tracking expenses and generating accurate reports from this data. Together, both roles are critical components of running an effective finance department!

Balance Sheet Basics – What Assets Can You Expect to See?

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A balance sheet is an essential financial document that provides a snapshot of your business’s assets, liabilities, and equity. It serves as a way to track the health of your company by revealing how much money you have coming in and how much money you are spending. But what exactly do all of those assets mean? Let’s take a look!

What are Assets?

Assets are items that have value and can be owned or controlled to produce value. On a balance sheet, they can represent anything from cash to accounts receivable. They can also include tangible items such as machinery and equipment, real estate, vehicles, furniture, inventory, and buildings.

Examples of Assets

Cash

This includes both physical cash on hand as well as funds held in bank accounts or other liquid investments. Cash is important for day-to-day operations because it allows businesses to pay bills, purchase supplies, and make payroll.

Account Receivables

These are payments owed by customers who have purchased goods or services from your business but have yet to pay for them. Accounts receivable is an important asset because it reflects future revenue that has not yet been recognized in the current period.

Investments – Investments include stocks, bonds, mutual funds, etc., which may be held for investment purposes or income generation. Holding investments helps diversify risk within a portfolio and potentially generate returns over time.

Equipment

Equipment refers to any machinery or tools used in order to run the business such as computers, desks, printers, vehicles, and more. Equipment is important because it enables the business to carry out its operations efficiently.

Inventory

This includes any products or materials that are held for sale by the company. Inventory must be tracked closely in order for a business to maintain healthy cash flow levels since selling inventory generates immediate revenue for the business.

As we can see from this quick overview of assets on a balance sheet, understanding what each asset means can help small business owners better manage their finances and stay on top of their financial goals! By familiarizing yourself with these common assets—cash accounts receivable investments equipment inventory—you will get one step closer to achieving financial success!

A Bookkeeper’s Guide to Closing Out the Books for the CPA

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If you own a small business, you might find yourself asking the age-old question: How does a bookkeeper close out the books for the CPA? It’s an important question—after all, your accountant can’t prepare your taxes without accurate and up-to-date financial statements. Fortunately, we have an answer. Let’s dive into how a bookkeeper closes out the books for the CPA.

Organizing Financial Records

The most important step in closing out the books is making sure that all financial records are organized and up-to-date. This means that all transactions must be recorded accurately, either in a physical ledger or in accounting software. It’s also important to make sure that all accounts are reconciled and any discrepancies are resolved before sending them off to your accountant. Doing this will help you avoid any potential headaches down the line when it comes time to prepare your taxes. As bookkeepers, we handle this on a regular basis throughout the year.  At year-end, we complete extensive reviews to ensure accuracy.

Recording Adjusting Entries

Once bookkeepers have ensured that all of your financial records are in order, it’s time to record any necessary adjusting entries in order to ensure accuracy. This includes recording accruals such as unpaid wages, prepaid expenses, and accrued income. Interest on loans must be recorded and reconciled.  Payroll reconciliations involve ensuring that the payroll recorded in the books matches the quarterly and annual reports provided to the state and IRS. Double-checking that the Accounts Receivable and Accounts Payable are accurate is another step to confirming that the books can be closed out accurately. These entries must be made prior to closing out the period so that they can be accurately reflected on the financial statements sent to the accountant.

Closing Out Accounts

The final step is closing out any accounts that need to be closed for tax purposes or other reasons. This involves transferring any balance from one account to another (e.g., from a current asset account such as Cash to an income account such as Revenue). This ensures that all accounts reflect their correct balances as of the end of the fiscal year or period being closed out for review by your accountant or auditor.

Closing out books for a CPA can seem daunting at first glance but it doesn’t have to be! With careful organization and attention to detail, we can close out your books before sending them off for review by their CPAs or auditors. By following these steps—organizing financial records, recording adjusting entries, and closing out accounts—you can rest assured knowing we are well on our way towards preparing accurate financial statements for review by your CPAs.

What is a Profit and Loss Statement?

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There are 3 main financial measures that provide you, the business owner, with the financial health of your company: 

  1. Profit and Loss
  2. Balance Sheet
  3. Cash Flow Statement

Income Statement 

Today we are going to take a deeper look at the Profit and Loss, otherwise known as the Income Statement. In a nutshell, the Profit and Loss shows you if your business is making money or not. The Profit and Loss shows you the summary of your revenue or income in relation to your expenses over a period of time.

Your income for your business is the money you are making from your clients. You are charging your clients for a product or a service that your business provides. Maybe you are providing ski lessons and charging your clients for your expertise. Maybe you are making delicious cookies and selling cookies to your clients. Either way, the money you are generating is your income or otherwise known as your revenue.

On the flip side, your business is spending money. You have to purchase your raw materials or pay for software. Maybe you are buying chocolate chips for cookies. Maybe you need software so that clients can book a lesson. You will have insurance for your business. You might have utilities or rent. Perhaps you are paying for labor. Whatever those expenses might be, it is important to know what you are spending, especially in relation to your revenue.

Net Profit

Your net profit is the difference between your income/revenue and your expenses. Your business is profitable…in other words, you are MAKING money if your income is more than your expenses. This is where you want to be. On the other hand, you are at a LOSS if your expenses are more than your income. You won’t know if you are in that position unless you are keeping an accurate set of books. 

As a business owner, you MUST know this about your business. You have to know if you are profitable or not in order to make decisions about your business. 

The Profit and Loss is a measure of your business over time. We can look at your Profit and Loss for a month at a time, a quarter at a time, or for a full year. Larger periods of time give you important big-picture information. Smaller periods of time might show you that in April your expenses are very high compared to your income. Maybe you have software subscriptions that get renewed in April. Or you might see that in October your revenue drops. No one is skiing in October. Can you figure out how to make some passive income in October or offer specials for the upcoming season? Those types of analytics help you make changes or adjustments in your business so that you can cover seasonality or patterns.

Now let’s talk a little more in-depth about the types of revenue and expenses.  

Categorize Revenue and Expenses

For a small business, the revenue is typically fairly easy to categorize. You might be an electrician so you are providing a service and selling parts. You can group all of your sales into one category and simply call it sales. Or you might want to break it into two categories: 

  • Services
  • Sales of Product

This would give you additional detail about how your business is making money. These should be big-picture categories.  

Expenses are a little more complicated because you need to categorize these based on tax rules in order to consider them deductions.

These categories can include items like: 

  • rent
  • insurance
  • subscriptions
  • utilities
  • payroll/labor
  • gas
  • raw material costs
  • cost of goods
  • etc.  

These must be carefully categorized to fully take advantage of your allowed deductions…a topic for another day but just remember, categorizing your expenses will save you in taxes.

Remember, regardless of how many categories you have, your total INCOME/REVENUE minus your total EXPENSES will determine your profitability.

Make Good Business Decisions

In a nutshell, are you making money? Is your business in the red or in the black? I like to tell my clients, while you might love what you’re doing if you’re not making money, then this is just a hobby. You better REALLY love your hobby if you’re willing to lose money! It is important that you know if you are making money or not. If you’re losing money, you might throw in the towel and read a good book…

If you are making money, how can you maximize your revenue? How can you minimize the time you spend working in the business by hiring appropriately? How can you determine when you should buy that new piece of equipment your business needs?  

Your profit and loss or income statement can help you steer your company into a path of success. Questions? Feel free to contact us!